A Guide to Master Franchising

The goal of any local franchisor is to step up their game and enter the global market. If your concept is thriving and you have the right management, marketing, and operations skills, you could be ready to onboard a master franchisee. 

A master franchisee contract is a binding and enforceable document that acts as the constitution of international franchising. In this article, we explore the benefits of a master franchise business.

Master Franchisee Explained 

While master franchising involves a franchisor and a franchisee like other forms of franchising, there’s a distinct difference. The main difference between a master franchise and other forms of franchises is that the master franchisee assumes the position of a franchisor in the designated territory or market. 

A master franchisee has the right to sub-franchise or open new franchise outlets under their name in the target region or territory. Franchisors depend on master franchisees to grow the brand concept, uphold the values and standards of the business and market the brand in the new market. On the other hand, franchisors’ obligations include: 

• Providing ongoing support to the master franchisee; 

• Training the master franchisee; 

• Providing technical support; 

• Helping with marketing the master franchise, and more.

Franchising regulation is both at the federal and state levels in the U.S. It’s important to know if your business is a ‘franchise’ or a ‘business opportunity’ to determine the applicable federal and state laws.

The Franchise Rule, enforced by the Federal Trade Commission regulates federal-level franchising in all US territories. Franchising arrangements trigger the following conditions:

• The franchisee acquires the right to trade using the franchisor’s trademark; 

• The franchisor retains control of operations, and

•  The deal involves a consideration— payment of the franchise fee.  

In addition to the federal regulations, different states have additional laws that fortify the federal legislation. The purpose of state regulations includes:

• Regulating franchise offers and sales— only 15 states do this,

• Imposing more disclosure requirements, 

• Regulating franchise  provisions, 

• Regulating ongoing franchise relationships. 

Advantages and Disadvantages of Master Franchising 

Master franchises allow local thriving businesses to scale into new territories, markets, states, and countries. While the business model offers numerous opportunities that are worth exploring, it also has some disadvantages. 

Advantages of Master Franchising 

Additional Income Stream 

Master franchising involves replicating a successful concept in a designated territory or market. In other words, starting a master franchise translates to an additional source of income.

The master franchisee will be remitting monthly or quarterly royalties to continue operating under your name.

Growth and Expansion 

The primary goal of master franchising business models is to facilitate business growth. That said, you should consider this growth strategy if you’re ready to explore international franchising.

Task delegation 

Master franchisees can delegate tasks to sub-franchisees, creating more time for other aspects of the business, such as marketing. 

Greater Control and Prestige

A master franchisee is an overall boss in their territory. Simply put, they have equal rights with franchisors. That said, a master franchisee has control over sub-franchisees, which comes with prestige.

High Success Rate

Research shows that franchise business models typically have a high success rate compared to other forms of business. This is the reason why the master franchisee invested in your business in the first place. 

The master franchisee believes that your concept can be successfully replicated in the target market. This means they have faith in your brand and they consider the brand a going concern or a business with a future.

Proven Business Model

Franchise business models are popular because their concepts have been tried and tested over time, and have weathered the storms to succeed.

Most successful franchises take over 6 months to experiment and come up with a winning formula for success. The experimentation phase helps in minimizing errors and potential risks.

Disadvantages of Master Franchising 

The disadvantages of master franchising include:

Start-Up Costs

Starting a master franchise involves numerous costs, such as leasing, staff recruitment, setting up the new office, and more. Besides the franchise fee, master franchisees must be prepared to bear the aforementioned maintenance and operation costs. 

Loss of Control

Master franchisees have equal rights with franchisors in their territories. One of those rights is controlling all affairs in the designated territory. In other words, the franchisor’s brand is almost entirely operated by the master franchisor. As a result, the franchisor significantly loses control of the business.  

Success Isn’t Guaranteed 

While franchise business models have a high success rate, success isn’t guaranteed. Like all other businesses, franchising involves some level of risk. However, you can succeed provided you put in the work and approach franchising strategically.

Master franchising has both advantages and disadvantages. While this growth strategy can be lucrative, prospective investors should be cautious to avoid risking their hard-earned money in shady deals.